India: Raising and Accelerating MSME Performance (P172226) Program for Results Public Disclosure Authorized Integrated Fiduciary Systems Assessment (FINAL) May 3, 2021 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Acronyms ACG Anti-Corruption Guidelines AG (A&E) Accountant General (Accounts and Entitlement) BE Budget Estimate CAG Comptroller & Auditor General of India CCA Chief Controller of Accounts CGA Controller General of Accounts CGTMSE Credit Guarantee Trust for Micro and Small Enterprises CLCS-TUS Credit linked Capital Subsidy Scheme and Technology Upgradation scheme CS Central Sector Schemes CSS Centrally Sponsored schemes CVC Central Vigilance Commission DBT Direct Benefit Transfer DC-MSME Development Commissioner, Micro, Small and Medium Enterprises DDG Detailed Demand for Grants DDO Drawing and Disbursement Officer DEA Department of Economic Affairs DLI Disbursement Linked Indicator DOE Department of Expenditure EAT Expenditure, Advance, Transfer eGem Government e-Marketplace eGP e-Government procurement FD Finance Department FM Financial Management FMIS Financial Management Information System GAR Government Accounting Rules GFR General Financial Rules GOI Government of India IA Implementing Agency IAW Internal Audit Wing IFSA Integrated Fiduciary Systems Assessment IFW Integrated Finance Wing IP Implementing Partner ISM Implementation Support Mission MDA Ministry, Department and Agencies MCRRP MSME competitiveness – A post COVID Resilience and Recovery Program MoF Ministry of Finance MoMSME Ministry of Micro, Small and Medium Enterprises MSME Micro, Small and Medium Enterprise NIC National Informatics Centre NPIU National Project Implementation Unit OPRC Operational Procurement Review Committee PAO Pay & Accounts Office PAP Program Action Plan PDO Program Development Objective PFM Public Financial Management ii PFMS Public Financial Management System PrAO Principal Accounts Office PSC Program Steering Committee QCI Quality Council of India RAMP Raising and Accelerating MSME Performance RBI Reserve Bank of India RE Revised Estimate RTI Right to Information (RTI) Act 2005 SIDBI Small Industries Development Bank of India SBD Standard Bid Document SIP Strategic Investment Plan SME Small & Medium Enterprises SO Sanction Order SPIU State Project Implementation Unit TA Technical Assistance TC Technology Center TCSP Technology Center Systems Program ToR Terms of Reference UBIS Union Budget Information System WB World Bank iii Table of Contents Section 1: Conclusions ............................................................................................................ 1 Section 2: Scope ...................................................................................................................... 5 Table 1: RAs, DLIs Allocation........................................................................................................ 5 Table 2: The Program Expenditure Framework (USD millions and percent) .............................. 7 Table 3: Expenditure Framework .................................................................................................. 8 Section 3: Review of Public Financial Management Cycle .................................................... 11 Table 4: Budget vis-à-vis Actual Expenditures, FY16-17 to FY20-21 (fig in INR million) .......... 13 Table 5: Sample sanction order and budget allocations for last two years ................................. 14 Section 4: Program Systems and Capacity Improvements .................................................... 31 Table 6: Summary of Risk and Proposed Mitigation Measures ................................................... 31 Section 5: Implementation Support ....................................................................................... 34 Annex I: Budget Estimate and Actual Expenditure for FY18-19 and FY19-20 ..................... 36 Annex II: Procurement profile of selected schemes and Implementing Agencies .................. 38 Annex III-A: Organization Structure of MoMSME ............................................................. 41 Annex-III-B: Organogram of the Accounting Organization in MoMSME ............................ 42 Annex IV: Scheme details of six components of CLCS-TUS ................................................. 44 Annex V: WB Funded TCSP Program: Procurement and contract performance (Goods and Works) .................................................................................................................................. 48 Annex VI: Fiduciary Assessment of Quality Council of India (QCI) ..................................... 51 iv Section 1: Conclusions 1.1 Reasonable Assurance 1. As part of Program preparation, the World Bank (WB) carried out an Integrated Fiduciary Systems Assessment (IFSA) of the Central Ministry (MoMSME) and five selected States (Punjab, Gujarat, Rajasthan, Maharashtra, Tamil Nadu) that are involved in the Program implementation, to determine whether the fiduciary systems provide reasonable assurance that funds will be used for the intended purposes. Fiduciary framework, mitigation measures and Program Action Plan (PAP) have been put in place. Additional States that are identified later and join the RAMP program will adopt the agreed fiduciary framework, including additional mitigation measures, as required. 2. The Central Ministry (MoMSME) and the selected States follow General Financial Rules (GFR-2017) of Government of India (GoI) for Financial Management (FM). For Procurement, States follow GFR-2017 or applicable procurement acts or laws. The GFR-2017 and respective state procurement acts /laws do meet the core FM and procurement principles of value for money, economy, efficiency, integrity, transparency, fairness and accountability. The program design provides for flexibility to include Institutions either as Implementing Agencies (IA) or Implementing Partners (IP) during program implementation at the Central and State level. The IP (public or private sector agencies) will be competitively selected and will be legally a contractor / service provider, while IA (government or quasi-government / public sector agencies) will be identified by the Government on nomination basis. The design also envisages an increase in the proportion of competitively selected IPs over nominated IAs, though already engaged IAs may continue during a transition period. The activities envisaged under the program are mainly soft interventions such as consultancies, capacity building and training programs and does not include any major civil works. MoMSME, at the Central level and the Department of Industries / MSME at the State level will be the nodal agencies who will engage IAs and IPs for the Program implementation and will be responsible for the overall monitoring and progress of the activities. They will be supported in identification and selection of IAs and IPs and monitoring of performance by the NPIU and SPIUs respectively. The MoU or contractual arrangements entered by MoMSME and State Department of Industries / MSME with the public and private sector agencies will define their relationship under the Program either as IA or IP. Institutions engaged as IAs will be subject to Bank’s prior fiduciary assessment and shall comply with all the PAP actions, as funds will be released to them as Grant-in-Aid for implementing program activities. The selected IA’s will further hire service providers / consultants following the GFR-2017 provisions. If the institutions are engaged as IPs to deliver services under the contract, the NPIU and SPIUs will monitor the contract performance, deliverables and payment milestones in the MIS system to be developed by MoMSME. All the contracts awarded to IP or awarded by IA to service providers / consultants will be subject to an annual audit covering procurement and FM aspects of the Program. 3. IFSA followed the WB Policy for PforR and the related directive. In view of the program design, where Institutions are envisaged to be selected either as Implementing Agency (IA) or Implementing Partner (IP), the team has adopted a framework approach to arrive at the conclusion of IFSA. The fiduciary systems of the Program were assessed based on the data and information 1 shared by MoMSME, review of fiduciary processes of CLCS-TUS scheme that was implemented by one of the main IA (QCI) implementing two of the major CLCS-TUS sub-schemes being scaled up under the Program, sample ‘Sanction Orders’ issued by MoMSME to IAs and audit reports of the C&AG that are available in the public domain; implementation experience of an existing WB financed Program (TCSP) – IPF operation with MoMSME having similar institutional structure; Central and State level PFM knowledge and other broader assessments such as recently concluded MAPS. IPs being contractors, do not require assessment under IFSA. The fiduciary risk of the Program is assessed as Substantial. To strengthen the existing systems and to mitigate fiduciary risk, various action items are recommended as part of Program Action Plan (PAP). With the implementation of recommended mitigation measures, the capacity and performance of the fiduciary systems of MoMSME and existing IAs are considered adequate to provide reasonable assurance that the Program funds will be used for the intended purpose. If any significant events and issues come to the knowledge of the WB during the program implementation, additional mitigation measures shall be promptly put in place in consultation with MoMSME.